May Housing Starts: Slowly Coming Back

• May housing starts rose 4.3% from April, to 974,000 (SAAR), and were down 23.2 percent from a year ago, according to the U.S. Census Bureau.
• Building permits were up 14.4% from April and down 8.8% from May 2019, to 1.22 million.
• Housing completions fell 7.3% from April and 9.3% from May 2019.

Home construction activity is beginning to slowly reawaken, just two months after the industry experienced an unprecedented decline in activity. Builder confidence has rebounded sharply in recent weeks, buoyed by a surprising increase in April new home sales, record-low mortgage rates that help stretch buyers’ budgets and a potentially enduring appetite among buyers for new, never-lived-in homes. Builders are certainly also aware of the fact that for-sale inventory remains critically and historically low, and of their role in bringing more homes to a market starving for them. But new construction, even for relatively simple projects, is a time-consuming process and shouldn't be expected to just bounce back overnight. And reopening shuttered construction sites is a different process entirely than starting from scratch at the permitting stage and working up from there. There remains a long way to go before home construction is fully back to pre-COVID levels -- permits are down 2.4% year-to-date, and are down 20.6% from their January high point, another testament to just how strong the construction pipeline looked pre-pandemic. And the rising cost of materials, to say nothing of the still-substantial economic and social uncertainty as the country slowly reopens, loom as very real obstacles to the industry’s full recovery. Still, even though it came in slightly below expectations, today’s release offers still more evidence of slow, steady and positive momentum in the housing market, which remains a rare source of relative strength in the overall economy.